The fact is, most people just don’t care about insurance. And unfortunately, until or unless they’ve been injured in an automobile accident, they also don’t think it’s important. That is in large part because of the myths that have been created by the insurance companies to lure people into saving money instead of ensuring that they and their loved ones are protected if they are ever involved in an accident. This blog post will address four common myths that the general public often believes about automobile insurance coverage, and explain the facts surrounding each.
Myth #1: “I’m fully covered.”
Many people often believe that they have “full coverage” when actually they only have the minimum amount of coverage. In California, the minimum amount of liability insurance that drivers of private vehicles must carry is $15,000 for the injury or death to one individual, $30,000 for injury or death to more than one person, and $5,000 for damage to property (or what is commonly referred to as “15/30/5”). So often times people are lead to believe that they have “full coverage” when, in fact, they only carry the minimum. This is the most common fallacy in the insurance industry, and insurance companies benefit from the fact that people believe it.
I cannot tell you how many times we’ve met with clients and have heard them say “I have full coverage”—only to find that they have a minimal policy of 15/30 coverage ($15,000 single limit/$30,000 aggregate). They have been lead to believe this notion because their insurance agent told them that they are “fully insured”.
Depending on who you speak to or what you read—and depending on whether you speak with a personal injury attorney or a representative of the insurance company—you will likely get a different answer regarding what full coverage actually means. Insurance companies will often tell people that “full coverage” is simply the minimum required in California (15/30/5), plus “comprehensive coverage, which covers certain damages to your vehicle that are not caused by a collision with another car (for instance, accidents related to weather, theft, fire, etc.) and “collision coverage”, or basically damage to your vehicle if you are found at fault in a collision. This would also include Uninsured/Underinsured Motorist (UM/UIM) coverage that is equal to one’s bodily injury coverage (which will be discussed separately under “Myth #3”).
It seems to make sense that people are often led to believe that they are fully covered with only a minimal policy then, right? However, if you were to ask an attorney what full coverage means, they will likely explain to you that what is more commonly considered “full coverage” in the state of California is actually $100,000 per individual person, or $300,000 per accident, and $100,000 for property damage (or what is commonly referred to, in short, as “100/300/100”).
To make matters even more confusing, “full coverage” can also be a relative term as well. For someone to be truly “fully covered”, they must also take into account their income, assets, and possibility for exposure if they are underinsured and have either a high income or assets to protect. For example, someone who earns over $200,000 a year and owns two homes would not be fully covered with even a 100/300/100 policy because in that scenario they would actually be underinsured.
Myth #2: “But the driver who hit me should have adequate coverage.”
We all want to believe that—like us—other people are responsible and will want to do the right thing. Since it’s a violation of California law to drive without insurance, many are lead to believe that most people on the road have good insurance, and unfortunately that’s just not the case.
Here is the reality: in the state of California, 14.7% of drivers do not carry any auto insurance at all. While that might seem like a low percentage to you, consider this: a majority of people driving on the roads in California have the minimum coverage of 15/30. That means that your chances of being involved in an accident with someone who is either uninsured or underinsured (with a minimal policy of 15/30) are greater than 65%!
The fact of the matter is, most people opt to carry minimal coverage because it gives them the cheapest payment per month. They do not consider their potential legal or financial risks, as most often they simply do not know them. People often don’t think insurance is important until they themselves are involved in an accident. And unfortunately, the minimal coverage of $15,000 often isn’t enough to cover someone’s medical expenses and compensation for pain and suffering when they’ve been injured in an accident.
One thing that can help protect you in these situations is Uninsured/Underinsured Motorist (UM/UIM) coverage, which will be discussed below.
Myth #3: “I don’t have any assets, so I don’t need high coverage.”
It’s true that if you cause an accident and injure someone, but do not have any assets or make more than the average wage earner per year, if you get sued by the injured person, it will be difficult for that person to collect additional monies above your policy and against you personally. Often times, if someone doesn’t have any tangible assets that they own (like a home, car, land, stocks or a lot of cash in the bank), it is very difficult to collect on a judgment against that person. We call this being “judgment proof”.
Even though someone might have difficulty with collecting monies from you, they still can make things very difficult. For example, they could actually obtain a high dollar judgment against you and take certain actions like garnishing your wages and filing liens on any properties until the judgment is paid off. This can be extremely problematic and under certain circumstances can affect your credit scores and ability to obtain credit and loans.
If you don’t have any assets, it is likely your insurance agent will tell you that you don’t need more than the minimal 15/30 in coverage because there is little likelihood of someone collecting on a judgement against you if you seriously injure them. However, even if you still fall in the category of being “judgment proof” it is in your best interest to carry more than the minimum $15,000 in coverage, so you can protect yourself in cases where you’ve been involved in an accident. Here’s why:
Let’s say you’re injured in an auto accident, where it’s not your fault. You are in a rollover accident where you suffer catastrophic injuries, including a traumatic brain injury, multiple fractures, a ruptured spleen, multiple lacerations and abrasions requiring plastic surgery, and a number of orthopedic injuries, which will cause life-long orthopedic issues. You have what is called a plaintiff’s personal injury case. Your case would undoubtedly be worth hundreds of thousands of dollars, and possibly over a million.
But here’s the catch: the person who hit you carried the minimum required coverage in California, so their insurance policy is 15/30. Since you are the only plaintiff, the single limit policy (the $15,000 available to one person) is all you will be able to recover. Not surprisingly, this person who hit you who carries minimal coverage also does not have any assets and is judgement proof.
So if no one else is at fault for the accident, you are limited to this $15,000 in insurance coverage. That means you’ll only have $15,000 to cover all your past medical bills, lost wages, future medical treatment, and to compensate you for your pain and suffering, along with all other elements of damages you would be entitled to under the law. That is—unless you carry UM/UIM coverage.
In this case, we call the defendant driver (the person who hit you) underinsured. And that’s where underinsured motorist coverage comes in.
Myth #4: “I don’t need UM/UIM coverage.”
Every auto policy comes with the option to have UM/UIM coverage. While you can opt-out of it, all policies must include this coverage to begin with. This coverage is typically the same amount of your bodily injury limits, but can sometimes differ depending on the coverage amounts you get. What’s troubling is that insurance agents often lull people into choosing to waive their UM/UIM coverage by explaining that they can save some money and get their monthly premiums lower by doing so. In reality, you’ll save only a few dollars a month, yet the penalties can be significant if you end up being injured in an accident.
In the scenario described in Myth #3 above, if you had UM/UIM coverage, your underinsured motorist coverage would kick in. So, for example, if you carried a $1 million insurance policy with $1 million in UM/UIM coverage, you would be able to recover $975,000 (the $1m UIM policy, less the defendant driver’s $15,000 policy). Even something like a $100,000 UIM policy would be a lot better than $15,000 and being stuck with a mountain of medical bills to pay.
My best piece of advice for buying automobile insurance is to get as much as you can afford. Even if you think to yourself, “Well, I don’t make a lot of money and I don’t have any assets”, having a decent bodily injury policy will in turn allow you to purchase high UM/UIM coverage as well, thereby protecting yourself.
You may be thinking to yourself, “Okay great, then I’ll just get high UM/UIM coverage and lower bodily injury coverage. Well—under the law—you are not entitled to do that. There are obviously public policy reasons behind the creating California legislation that requires someone to first carry insurance to protect other people, and then get equal or lesser coverage for UM/UIM. So your UM/UIM coverage can only be as high as your bodily injury coverage; your UM/UIM cannot be any higher.
Our advice to you is to find out what your coverage limits are, and consider raising your limits if you can afford to do so. Even if you don’t own a home or other assets, aim for slightly higher coverage like 25/50 or 50/100. If you do own a home or any other assets, you should not carry anything less than a 100/300 policy. If there’s any equity in your home or if you have any investments, such as stocks or bonds, it is advisable that you obtain the highest coverage afforded to you. And If you are a high earner, you should also consider getting an umbrella policy.
Not all carriers will offer higher dollar policies though. Companies like State Farm, AAA and Liberty Mutual are examples of carriers who will insure you for up to $1 million for a single limit policy. Companies like Mercury, Geico, Progressive and Allstate typically only hand out policies up to 250/500, though it can vary by company. Some companies even—like Julio’s Insurance or Fred Loya—are known for generally only handing out minimal policies.
So who you speak with when you’re purchasing insurance is important as well. Be sure to shop around and speak with different companies. Simply getting the “best” price does not necessarily mean you are getting the best deal.